Foreign Direct Investment and Exports
Transcript of Foreign Direct Investment and Exports
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Foreign Direct Investment andExports
James Gordon
Presentation at IIFTSeptember 20, 2002
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FDI and Exports
FDI in ChinaDI in China
FDI in India China vs. India
FDI in Korea
Implications for India
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FDI in China
Exports have grown rapidly over pasttwenty years. Share of worldmerchandise exports tripled to 4 percent.
Expansion in exports has beenassociated with large inflows of FDI
(Chart) But exports by domestic enterprises have
also grown strongly (Chart)
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China. Foreign Direct Investment and
Exports, 1982-2000(In billions of US$s)
0
50
100
150
200
250
300
350
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Cum. FDI
Exports
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China. Exports by Type of Enterprise
1993-2001(In billions of US$s)
0
2040
60
80
100
120
140
1993 1994 1995 1996 1997 1998 1999 2000 2001
Foreign/JVs
Domestic
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FDI and Exports
FDI in China
FDI in IndiaDI in India China vs. India
FDI in Korea
Implications for India
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FDI in India
Exports have quadrupled over pasttwenty years, but share has only risenfrom 0.5 to 0.7 percent of world
merchandise exports. FDI picked up 10 years ago, but has
remained small (Chart) and primarily
geared toward local market. Domestic investment has also remained
much lower than in China (Table)
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India. Foreign Direct Investment and
Exports, 1982-2001(In billions of US$s)
0
10
20
30
40
50
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Exports
Cum FDI
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China and India
Selected Economic Indicators(In percent of own GDP)
1978 2000China India China India
GDP pc (const US$s) 225 197 855 467
Exports of Goods 4.6 5.1 19.1 9.2
Imports of Goods 5.2 6.8 23.1 12.4
Net FDI inflows 0.0 0.0 3.6 0.4
Total investment 36.7 21.0
Source: Tseng and Zebregs (2002)
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FDI and Exports
FDI in China
FDI in India China vs. Indiahina vs. India
FDI in Korea Implications for India
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China and India. Foreign DirectInvestment Inflows, 1990-2001
(In millions of US$s)
5000
10000
15000
20000
25000
30000
35000
4000045000
50000
1990 1992 1994 1996 1998 2000 2001
China
India
Source: Pfefferman (2002)
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But is Indias FDI Understated? An IFC paper recently asked whether
something is wrong with Indias FDI numbers Despite large investments, Citibank: US$400
million, Coke and Pepsi: US$1.3 billion, and
other new foreign players, annual flows onlyabout US$3 billion.
IFC notes that Indias FDI statistics exclude
reinvested earnings, subordinated debt, andoverseas commercial borrowings. These areincluded in FDI in other countries.
Source: Pfefferman (2002)
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Is Chinas FDI Overstated? IFC concludes that Indias FDI, if correctly
measured, could be US$8 billion or1.7percent of GDP Also estimates that Round-tripping in China
could be 50% of total FDI inflows.
Reducing Chinas FDI by half implies annual
inflow of US$20 billion, or2 percent of GDPIFC conclusion: Not a huge difference
Source: Pfefferman (2002)
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Caveats China round-tripping assumption isextreme (Table). And what of India?
(Table)
In any case, absolute amount of FDIgoing to China is still much larger.
And FDI in China has not onlygenerated large exports, it has alsocreated 20 million jobs (Chart).
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China. Foreign Direct InvestmentCountry-wise Inflows, 1999
US $ million Percent
Hong Kong SAR 16,605 41.0
Taiwan POC 2,916 7.2
Japan 2,633 6.5
Singapore 4,010 9.9
EU 4,455 11.0
South Korea 2,511 6.2U.S. 1,215 3.0
Other 6,116 15.1
40,500 100.0
Source: Tseng and Zebregs (2002)
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India. Foreign Direct InvestmentCountry-wise Inflows, 2001-02US $ million Percent
Germany 74 2.5
Italy 28 0.9
Japan 143 4.8
Mauritius 1,863 62.3
Netherlands 68 2.3
South Korea 3 0.1U.S. 364 12.2
Other 445 14.9
2,988 100.0Source: RBI
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FDI and Exports
FDI in China
FDI in India China vs. India
FDI in KoreaDI in Korea Implications for India
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UNCTAD Report, 2002
Major differences across countries in proportion
of exports contributed by foreign companies:
Ireland (manuf. 1999) 90 percent
China (2001) 50 percent Brazil (2000) 21 percent
Korea (manuf. 1999) 15 percent India ? (3 pct in 1991)
Source: UNCTAD World Investment Report (2002)
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China and Korea. Foreign Direct
Investment Inflows, 1982-2001(In billions of US$s)
0
10
20
30
40
50
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
China
Korea
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Korea. Foreign Direct Investment and
Exports, 1982-2001(In billions of US$s)
0
20
40
60
80
100
120
140
160
180
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Exports
Cum FDI
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FDI and Exports
FDI in China
FDI in India China vs. India
FDI in Korea Implications for Indiamplications for India
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Lessons from other CountriesUNCTAD report notes that countries with dynamic
export performance have used FDI to different degrees: Hungary, Ireland and Mexico used FDI to leverage
preferential access to major market
China used size of domestic economy to reapeconomies of scale and boost competitiveness. Alsoestablished Open Economic Zones.
By contrast, Korea used domestic investment to buildworld-class manufacturing sector.
Indian manufacturing faces well-known structuralconstraints (infrastructure, power, labour laws, smallscale reservations). Current focus is on SpecialEconomic Zones (SEZs).
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IMF Views on Export Promotion via SEZsSEZs can provide facilities necessary to make exports
competitive and attract FDI. IMF 2002 Consultationwith India noted importance of:
SEZs establishing links with domestic enterprises(technology transfer, boost productivity and skills)
Avoiding complex and over-generous SEZ incentives
Prudential control of offshore banking units (potentialconduits for short-term capital that could increase
vulnerabilities of domestic financial system) Industrial countries opening up their own markets to
Indian exports
Source: India PIN, 2002 www.imf.org